Missouri orders prediction markets to stop offering sports contracts

Missouri Attorney General Catherine Hanaway, a Republican, has sent cease-and-desist letters to six prediction market companies, arguing that their sports-related event contracts amount to unlicensed sports wagering under state law.The move adds Missouri to a contentious legal battle between states and the federal government over who has authority to regulate prediction markets, which allow users to bet on the outcome of events ranging from sports, elections, and the weather.Hanaway’s office sent letters to Polymarket, Kalshi, Crypto.com, Novig, Underdog, and Robinhood, ordering the companies to stop offering sports event contracts to Missourians unless they obtain licenses from the Missouri Gaming Commission. “Missourians voted for a safe, well-regulated sports wagering market that supports public education and addresses problem gambling,” Hanaway said. “Companies cannot repackage sports bets as ‘event contracts’ to avoid Missouri law.”Hanaway’s office also argued that companies offering sports contracts must pay the taxes and fees required under Missouri law and prevent anyone under 21 from placing a wager.In its letter to Polymarket, the Attorney General’s Office said the company’s failure to comply with Missouri law also includes its failure to pay state taxes and fees. Missouri imposes a 10% tax on adjusted gross revenue from in-state sports wagering, according to the office.Missouri voters approved Amendment 2 in 2024 to legalize and regulate sports betting, with oversight by the Missouri Gaming Commission. The framework includes a 10% tax on sports betting gross receipts and requires operators to verify that bettors are at least 21.Prediction market operators face conflicting rulings in federal court over whether sports event contracts are financial derivatives regulated exclusively by the Commodity Futures Trading Commission or gambling products that states can regulate.The dispute centers on the Commodity Exchange Act, which defines “swaps” to include certain contracts whose payments depend on the occurrence of an event associated with a financial, economic, or commercial consequence.Kalshi, the biggest prediction market company, has maintained that its sports contracts fall within that federal framework and therefore cannot be regulated by states. The company also distinguishes its model from those of traditional sportsbooks, arguing that sports betting operates more like a casino, where customers play against the “house,” while Kalshi operates as an exchange where customers trade contracts against one another.But the courts have not reached a uniform conclusion.New Jersey was among the first states to challenge Kalshi over its sports contracts, sending the company a cease-and-desist letter in 2025. Kalshi sued the state and sought an injunction preventing New Jersey from enforcing its gambling laws against the company.In April, the U.S. Court of Appeals for the 3rd Circuit affirmed the preliminary injunction, finding that Kalshi had shown a reasonable likelihood that the Commodity Exchange Act preempts New Jersey’s gambling laws as applied to its sports contracts. The court held that the contracts qualified as swaps traded on a federally regulated exchange.New Jersey attorney general wants to bring prediction market Kalshi to Supreme CourtThe 9th Circuit reached the opposite conclusion in August in a case involving Nevada. The court rejected Kalshi’s broad interpretation of the Commodity Exchange Act and upheld an order allowing Nevada to enforce its gambling regulations against Kalshi’s sports event contracts.The conflicting appellate rulings have created a circuit split over the scope of federal preemption and the states’ authority to regulate sports contracts. New Jersey’s attorney general petitioned the Supreme Court, asking the justices to step in. The high court has not yet decided to take up the case.